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Saving for a rainy day: Estimating the appropriate size of U.S. state budget stabilization fundshttp://hdl.handle.net/10419/109707
Title: Saving for a rainy day: Estimating the appropriate size of U.S. state budget stabilization funds
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<br/>Authors: Zhao, Bo
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<br/>Abstract: Rainy day funds (RDFs) are potentially an important countercyclical tool for states to stabilize their budgets and the overall economy during economic downturns. However, U.S. states have often found themselves exhausting their RDFs and having to raise tax rates or reduce expenditure while still experiencing a downturn. Therefore, how much each state should save in its RDF has become an increasingly important policy question. To address this issue, this paper develops target RDF levels for each U.S. state, based on the estimated short-term revenue component associated with business cycles and also on states' preferences for stable tax rates and expenditure. The analysis shows that in the last 25 years at least 21 states have never saved enough in their RDFs relative to their needed RDFs. The paper provides policy recommendations on reforming the RDF caps.Smoothing state tax revenues over the business cycle: Gauging fiscal needs and opportunitieshttp://hdl.handle.net/10419/109706
Title: Smoothing state tax revenues over the business cycle: Gauging fiscal needs and opportunities
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<br/>Authors: Kodrzycki, Yolanda K.
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<br/>Abstract: The high degree of fiscal stress experienced by state governments in the 2001 and the 2007-2009 recessions has prompted renewed discussions of alternative approaches to stabilizing state finances over the business cycle. Prompted by evidence of increased state tax revenue cyclicality in the aggregate, this study explores state-specific patterns so as to inform policymakers in individual states. It finds that while elasticity levels continued to differ across states, most states experienced greater cyclical sensitivity in the 2000s than in the 1980s and 1990s. In addition, during the 2000s personal income tax receipts varied more over the business cycle than sales tax receipts in most states that imposed both forms of taxation. This trend represented a departure from the patterns of the prior two decades, when sales tax receipts were more cyclically sensitive than individual income tax receipts in the majority of states. Cross-section regressions reveal that the main source of variation in income tax elasticities across states during the 2000s was the cyclical sensitivity of their residents' incomes as reflected on their federal income tax returns. By contrast, state-specific features such as the tax treatment of capital gains or the progressivity of tax rates did not account for significant differences in revenue elasticities across states. In addition, state departures from the federal definitions of adjusted gross income and taxable income, on the whole, did not contribute to increased revenue volatility over the business cycle. The findings are used to evaluate the efficacy of alternative measures that could be used to help stabilize state revenues, including reforms of state tax and stabilization trust structures.House price growth when children are teenagers: A path to higher earnings?http://hdl.handle.net/10419/109705
Title: House price growth when children are teenagers: A path to higher earnings?
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<br/>Authors: Cooper, Daniel; Luengo-Prado, María José
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<br/>Abstract: The United States has a long history of promoting homeownership through the mortgage interest tax deduction, and home equity constitutes an important source of borrowing collateral. There is a sizable body of work studying how fluctuating house prices impact consumer behavior. Since college tuition costs pose a large financial burden for many U.S. families, access to housing equity may impact decisions about pursuing a post-secondary education. This paper adds to the literature by using MSA-level house-price variation and data from the Panel Study of Income Dynamics to study the link between future adult earnings and the house price growth that occurs around the time children are 17 years-old, when most college enrollment decisions are made, and how this link varies based on whether parents own or rent their homes. The sample period runs from 1979 through 1999.Price setting in online markets: Does IT click?http://hdl.handle.net/10419/109704
Title: Price setting in online markets: Does IT click?
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<br/>Authors: Gorodnichenko, Yuriy; Sheremirov, Viacheslav; Talavera, Oleksandr
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<br/>Abstract: Using a unique dataset of daily U.S. and U.K. price listings and the associated number of clicks for precisely defined goods from a major shopping platform, we shed new light on how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors' prices, and low costs of nominal price adjustment. We document that although online prices are more flexible than offline prices, they nevertheless exhibit relatively long spells of fixed prices, large size, and low synchronization of price changes, considerable crosssectional dispersion, and low sensitivity to predictable or unanticipated changes in demand conditions. Qualitatively, these patterns are similar to those observed for offline prices, a finding that suggests a need for more research on the sources of price rigidities and dispersion.